 QuickBooks Online 2024. Payroll transactions using bank feeds. Get ready some coffee and clear your mind because we don't overanalyze. We intuit with intuits. QuickBooks Online 2024. First a word from our sponsor. Yeah actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but but that's okay whatever because our merchandise is is better than their stupid stuff anyways. Like our crunching numbers is my cardio product line. Now I'm not saying that subscribing to this channel crunching numbers with us will make you thin fit and healthy or anything. However it does seem like it works for her. Just saying. So yeah subscribe hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience consider subscribing to our website at accounting instruction dot com or accounting instruction dot thinkific dot com. Here we are in our QuickBooks Online Bank Feed Practice file we set up in a prior presentation opening the major financial statement reports as done every time. The reports on the left hand side were in the favorites. We're going to be right clicking on that balance sheet open link in a new tab. Right click on the P&L profit loss otherwise know as the income statement open link in a new tab right click it on the trustee tv the trial balance open link in a new tab if you don't have that trial balance in the favorites you could search for it. Tapping to the right closing the hamburger and we'll change the range to the first two months of two thousand twenty four oh one oh one two four tab oh two twenty nine two four tab selecting the drop down we'd like to see months by months side by side run it then we'll tab to the right close the hamburger again change the range oh one oh one two four tab oh two twenty nine two four tab drop down for the months run it to refresh it one more time with the trustee tv trial balance right the hamburger needs to be closed change the range oh one oh one two four tab oh two twenty nine two four tab drop down months run it to refresh it let's go back to the balance sheet and now think about the payroll process so the payroll process you have a lot of different options on how you're going to deal with the payroll and then once you select or as you are selecting you want to think about how the bank feeds can fit into the payroll process that you have set up first thing to note double entry accounting system assets equal liabilities plus equity this is a universal system it's not going to be subject to like location but things that do affect the accounting are of course you'll have different currencies depending on the location and you're going to have laws that could have an impact on the accounting principally the laws that make accounting more complex are tax laws and so when we think about payroll payroll should be a very easy transaction and possibly is an easy transactions and many parts of the world but if you have payroll taxes that are intertwined in that and also oftentimes the government has laws that are also kind of intertwined then it's going to make the payroll taxes a lot more complex in the united states these laws have gotten so complex that we have specialty fields around them including just the reporting of the payroll because we have to have withholdings related to them for payroll taxes and then there's human resources which kind of touches in on payroll but it's also around all of the laws around you know employment so i'm going to be looking at this from the standpoint of the united states but if you have similar laws the tax taxes are there's nothing really new under the sun for taxes it's just a question of where you are at and what kind of tax laws that location is basically putting in place and then you can you know apply the tax that is relevant to you okay so that said let's go to the first tab over here and just realize if i select the plus button normally payroll should be as easy as any other kind of transaction that we could usually like just wait till it clears the bank and use the expense form as the payroll clears the bank to record payroll expense right so we would see the process it should look like this i just go to my dashboard over here and i've made an agreement with an employee let's change this to money out rule to pay them every week and then they worked for a week and then i pay them so if i paid them this 1600 i should just be able to say decrease to the checking account the other side goes to payroll uh expense that's a normal business expense easy however of course it's not that easy because we have in the united states payroll taxes on the federal level as well as payroll taxes on the possibly on the state level and and so that's going to complicate things and then we have reporting requirements on the payroll taxes that we have to deal with and then again the human resources might also touch into that so it's very unlikely you probably do not want to do payroll yourself basically by hand not because any one tax is difficult to calculate but because when you combine them all together along with the reporting requirements it becomes complex just because the amount of different things that you have to handle so even if you're just doing limited payroll a few people you probably want some support to help you out with the payroll how do you get the support well quickbooks you can do payroll within quickbooks but you still have to pay more for it so there's going to be different tiers you can look into your payroll options to purchase payroll if you went into the reports or the payroll on the left hand side then you have your payroll center if you don't have payroll then you could probably go in here and think about purchasing payroll and look into your options for purchasing payroll within quickbooks your other option which of course would still cost money either way they cost money probably be more expensive a little bit to have an outsourcing of payroll though in other words you hire someone else the big ones being like an adp or a paychecks to process the payroll outside of quickbooks and then you import into quickbooks just what you need those are kind of like your primary two options i'm not advertising adp i'm just saying those that's one company that that does that so let's get an idea about the payroll process this is the quickbooks desktop flow chart we're using for online purposes just to think about the flow of the forms that will be impacted and then how bank feeds might fit into that so we're on the payroll side now this is the time entry you might not have to enter time into uh quickbooks if you're paying someone like on a salaried basis if you're paying them on an hourly basis you're going to need some format for them to give you the number of hours you could enter that into quickbooks directly with the entering of the time or you might just count it in other software or give you just you know a a word document or an excel document to calculate that then we're going to be processing payroll actually delivering the checks or giving the electronic transfers of the checks this is the decrease to the checking account which you would imagine would come through on the bank feeds that we would be able to see this will happen how often will this happen well it's up to you as you start the business are you going to choose to pay people normally it would be either weekly semi-week or semi-monthly every two twice a month or bi-weekly two times a week which isn't exactly semi-monthly because each month has a different number of days in it and then you could do it monthly those are the typical ways that you might uh pay people when you actually pay them it's not just going to be a decrease to the checking account and the other side going to payroll expense however because the united states forces the employee to be the tax collector for the employee and also assigns payroll taxes on the employer side not for their own wages but for the wages of the employee so that means that that you're going to have to take the money out of their paycheck so they're going to give you so they're going to have their net check you take money out and you're not going to pay it usually directly to the government at the time you process the payroll but instead put that into a liability account called payroll tax liability to do that is like an accrual thing to do so now we've deviated from a cash based system it's going to mess up our bank feeds because if i do this within quickbooks then i can't wait till something clears the bank because i have to deal with these withholdings now so the withholdings are going to be social security medicare federal income tax then you might have state income taxes that you also have to withhold and you could have voluntary withholdings things like a 401k or retirement plan and insurance health insurance and so on that you might be dealing with on the withholding we also have our taxes on the employer side that we have to deal with uh as well and then after we process the payroll we're going to pay those payroll taxes ours and the employees that we withheld to the government uh and we'll have to do that and then we have the payroll forms that we have to process in the united states the federal forms being the 941 typically on a quarterly basis for the social security medicare federal income tax for the employees federal income tax and then the 940 at the end of the year for futa federal unemployment tax act and then the the w3s and the w2s at your end again software is very useful to help with the processing of that all of this information means that if you turn payroll on within quickbooks you're going to get a lot more detail than you possibly need just to create the financial statements correctly because i need all this detail to then process the 940s the 941s the w2s the w3 and the payroll stubs which are also required every time we make a payment to each employees so so that's going to be a lot of added reports that if you turn payroll on within quickbooks you're going to have all these other reports that are going to be included in a lot of detail again more than you need just for the reporting of the financial statements uh so if that was your process then you would have to actually process payroll within quickbooks and that would record the checks on our side right and then the checks would clear on the bank feeds and you would be using the bank feeds just to match out you wouldn't actually be recording transactions with the bank feeds just using it to help you with the reconciliation process that's how you basically have to do it if you're processing payroll within quickbooks your other option is to process payroll outside of quickbooks with a payroll provider like an adp or something like that and then all you have to do is add into your system the information necessary to get the financial statements properly organized as well as do the bank reconciliations and you could do that on a payroll period by period basis possibly on a monthly basis possibly on a quarterly basis or on a yearly basis you know if you so choose so just to get an idea of this let me show you like a very simplified kind of report on how payroll works and then you could and this will help maybe to see how the bank feeds fit into it so i'm going to go into excel here and i'm going to make like a payroll register just so we can kind of get an idea of what is going on i'm going to select the entire sheet right click on it format the cells i'm going to go into currency negative numbers bracketed no dollar sign i'll get rid of the decimals for the purposes of our practice problem to make it cleaner okay and then and so then i'm going to say let's say that we have employee employee one and employee two or just let's let's name them sam and uh sam and jane or whatever our our two employees and then i'm going to select those i'm going to make that a header by going to the home tab and font group and make that black and white and i'll center it home tab alignment and center and let's make this a little larger all i'm also going to select the whole thing home tab font group and make it all bold okay so let's let's imagine that we have earnings earnings this is their wages in other words for sam 1200 and jane 2500 that means we have a total between the two of them uh i'll format paint this over here if i sum this up equals the sum of these two so the point i want to point out here is that if an external provider did the payroll we might be able to think of it all of our employees as though they were like kind of one employee because i really need to get the financial statements correct and i might just be able to use the totals and not have all the other sub detail which i don't need for financial reporting however we do need for the the payroll tax reporting and whatnot which will not be handled within quickbooks if we have a third party provider to do it right that would be the idea so then f it is federal income tax not for the company but for the employees we have to take their income tax out of their wages according to the w4 form typically that they are going to be providing us quickbooks has a nice way to provide the w4 form within the system which is nice but in case i won't get into that i'm just going to make up a number because it's not a flat tax it's complicated because it's based it's based on what they tell us they we need to withhold and so they're still trying to make an estimate based on their form 1040 income so that's so so we're just going to do what we're told based on what they give us on the w4 let's say jane had had negative 230 i'm just making these numbers up completely some of these two so that means we have total f it federal income tax for the employees not our federal income tax we have to pay our federal income tax on the net income but then we have social social security employee portion let's say that this is something that's more of a flat tax so this would be negative of the earnings times 0.062 and that's going to be about $74 so that one is easy to calculate because it's more of a flat tax although there's a cap on it and so it there's still some complexity to it let's do the same thing here i can i can say this is going to be this their earnings times 0.062 so i can think of that as a total as if they were one employee so i can say if all my employees were one employee they had earnings of 3700 f it 410 social security for the employee portion 229 and then medicare medic medicare that's more of a flat tax although it's not perfectly flat again because there could be added taxes on it but let's generally it's going to be the gross times 0.0145 so this equals negative this times 0.0145 and this equals the sum of these two and then let's say that's it i'm that's quite simplified because we could also have you know voluntary withholdings and state taxes we have to deal with but these are the common federal taxes this is employee so that means if this was it they're net check so i'm going to sum this up because we have negatives and positives so it's going to be the sum of this which is basically the 1200 minus the 180 minus the 74 minus the 17 i can copy that across doing the same for each of these items so if we processed payroll through quickbooks then the calculation would be the 1200 and then it would withhold these amounts put them into a liability per employee the net check would be at 928 which we would have to enter as we process the payroll this is what we would see coming through the bank feeds so it would come through the bank feeds over here and we would simply just check it off as a match it would say that it was matching because we already would have to process the payroll within the system in order to do the payroll within quickbooks now if we did the payroll outside of quickbooks with an adp it might be possible for us to treat all of our employees basically as one employee saying this is as if they were one employee earning 3700 minus the payroll taxes gets us to a net check of 3007 so a little bit tricky to deal with the payroll in the bank feeds with that because there's actually two checks that will clear through the bank feeds but we can match those two out and that would be like the easiest transaction to do we'll see that in a second but we also let's also think about the employee side so we have social security employee error that's what the er stands for which will basically match the social security here and then so this is what we are paying over and above what comes out of the of the employees checks and then we have Medicare employee error which we're going to match so I'll copy that across and then I'm just going to say that's going to be the total employee error I'll sum that up for these two I will copy that across and I'll put an underline here so these taxes that are pulled out here are taxes but they're not our taxes those are the employee taxes we're being forced to be the tax collector by the government and so we're taking their money from them before they get it and and giving it to the government these taxes are our taxes that are over and above what we agreed to pay the employees that we're not paying on our income but basically paying on the employee's income so after this the total liability total payroll tax liability I know I'm not spelling all this correctly I'm just going to is going to be equal to the sum of these federal income tax hold on a second the sum of these federal income tax social security and medicare plus our portion of social security and medicare we're going to end up with a liability if we process the payroll of these amounts right and this is just the same here it's just a double check so that's how much if we process payroll we would say they earned this amount we took this from their paycheck and we owe on top of that this amount so the total payroll liability after processing payroll would be this uh 976 so you can see that this information would gets quite detailed even with a few employees because we have to report this on a paycheck by paycheck basis on a year to date basis as well as a paycheck by paycheck to each of the employees so if we didn't have to do all that internal reporting we would eliminate a lot of detail within our quick book system and just need the information to report the financial statements correctly so we can do our taxes and possibly external reporting that's the difference of doing the payroll internally within quick books or one difference and doing it externally with the help of a payroll provider like an adp let's put some borders around this and now I'm just going to look at the payroll journal entry I'm going to do debits and credits just so you can kind of get an idea if you don't understand debits and credits that's okay we'll just get an idea of what is happening here so the earnings it's going to go into a payroll expense account payroll expense would be the total earnings so they earned in total if I think of them together this 3007 and then we're going to we're going to say that they have payroll liabilities which would be a liability account liabilities that tease something like that would be the negative sum of the FIT Social Security and Medicare for both of them if I'm thinking of them as one employee I'm going to make that actually a negative number so I won't say negative sum just sum and then the net check or checks the decrease the checking account let's say checking account would be the negative sum this is the plug of these two there's the 3007 so so this would this is what we if we took the payroll register and entered it as a journal entry this is what this is all we would need to do we wouldn't need all the breakout of the detail although this 3007 is going to be hitting the checking account and the actual checks that will hit the checking account will be individual checks which will be the the 928 and the 2079 so we will have to be doing a little bit of matching if we were to use that method to record so let's just and the other part of this would be the payroll tax expense which would be equal to this I'm going to make that a positive for debit and then we're going to say again the payroll liabilities would be a negative of that so this is our portion of the payroll taxes notice the payroll taxes really should not be including the the employees payroll taxes because that's included in the wages our payroll taxes are our portion of the taxes so that means that the payroll liability for both will end up being after that after we do that that's that's why we get to that 976 which is going to be the liability that will then have to pay to the government for the payroll taxes that's going to be the general idea so if you had an external ADP doing the paychecks then you could take their payroll register on a pay period by pay period basis or monthly basis quarterly basis or yearly basis and then just do do this journal entry and that'll help you to basically reckon then and then you'll see these amounts that will clear the bank feeds that you can basically reconcile or you can try to stay in a cash to based system how could you stay in a cashed based system well you could say look i'm just going to i'm just going to watch these clear the bank and when these clear the bank i'm just going to say that we have cash or or we'll just put it into payroll expense payroll expense is just going to be for this one it'll be both of these right it'll be one at a time we'll have a payroll expense of that one and then a payroll expense of this check and both of them are going to be going into we'll put the other side into cash the checking account will be going down because we'll see those two transactions that will clear right so that so that'll just be our normal transaction that will try to stay in a cashed based system and and record that the problem with that of course is that we don't have the proper withholdings calculated at that point in time and i'm not breaking out the payroll expense versus the payroll taxes but the payroll taxes will be paid later also managed by adp or whoever is doing our payroll so we can then say well when the payroll tax is clear again i'm just going to record that to payroll expense i'm not going to try to break out the taxes i'm just going to say then this cleared payroll expense boom and then the other side's going to be going to the checking account so we'll see that money going out it's just that there's going to be a timing difference when that money goes out so so if you if you do this then then what's going to be the problem with that well from a financial reporting perspective the the idea would be that adp would be taking care of all of the all of the 941s or whoever i'm not trying to promote adp whoever's doing your payroll but whoever you could you could have them do the do the reporting requirements and whatnot and then we just use the bank feeds on a cashed based system just the easy way right we just record it everything to payroll that's payroll related to payroll expense and then possibly just at the end of the year if we need this for tax purposes or possibly quarterly or monthly if we need it for external reporting we have adp give this information to our tax preparer or cpa and they then reconcile everything based on the reports provided by adp as well as the information we give the government such as the tax returns for the 941s the 940 the w2 and the w3 they just take that information and then properly do an adjustment at your end which will break out from payroll expense the payroll tax portion and the and the payroll expense portion if we need to do that as well as record any payroll liabilities that should be on the books as of the cutoff of the end of the year which you might have to do anyways because oftentimes the payroll doesn't line up exactly with uh the year end right because if you're paying people every other week then the pay period isn't going to land on december so oftentimes for external reporting you still have to do an adjusting entry at the end of the year so those are basically your methods with with payroll right so so your methods with payroll do payroll internally turning on quick books to process payroll which can help you to process all the forms but will also add a lot of heavy weight into quick books that is needed to process the payroll tax forms and is not necessary for the just the creation of the financial statements for taxes and external reporting in that case again you'll process the paychecks as they as they happen first and then you will just match them to the bank feeds as they clear the bank your other option is to get a third party provider like an adp or paychecks or something like that to handle the processing of the payroll and the and the tax returns in that case you're going to see the checks clear the bank and you can decide either to record the transactions into the system on a payroll by payroll period based on the reports provided to you or on a monthly period accordingly or yearly period or you can try to just say i'm going to stay on a cashed based system let adp or paychecks handle all of the payroll requirements and then just reconcile my books at the end of the year for tax purposes and and external reporting purposes with the help use and coordination of the adp payroll reports as well as the what we're given to the government the w2s the w3s the 941s which we provide to our cpa or tax preparer to make the adjusting entries to have everything tie out which again you might need to do anyways and the point of this basically at the end of the day when we get to the to the what's reported on the financial statements for example we should be able to reconcile exactly whatever is in payroll expense and payroll taxes we should be able to reconcile to the reports we provide to the government meaning we provide the government a 941 which is which is going to we do that quarterly for the federal income tax social security and medicare and we provide them with a 940 federal unemployment tax and we provide them with a w3 form and the w2s which is is is going to be the the tax information so we should be able to reconcile what we have on our books to what we also gave to the government because we're going to give them our books in the form of income taxes our income taxes not payroll taxes so what it's on our books as expenses for for wages and payroll taxes should be able to be reconciled at least to what we also gave them on the payroll side of things in the form of 941s 940 w2s and w3s which again you can check for and you should check for if you're being diligent at the end of the year so that you're not subject to any kind of audit because if those things are wildly out of whack they don't reconcile with each other then that's going to clearly possibly raise questions it could on the government side of things because now they have two things that should kind of match and they don't really reconcile so that's going to be some options for uh the payroll sorry that was a little bit abstract but that's it